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25th January 2023 (7 Topics)

IMF confirms receipt of India’s financing assurances for Sri Lanka

Context

The International Monetary Fund (IMF) has confirmed receiving India’s written financing assurance in support of Sri Lanka’s economic revival, while Sri Lanka has expressed hope of completing talks on debt restructuring in six months’ time.

About India-Sri -Lanka relations:

  • India and Sri Lanka have a long history of cultural, religious, and trade ties dating back to ancient times.
  • There are strong cultural ties between the two countries, with many Sri Lankans tracing their heritage to India. Buddhism, which originated in India, is also an important religion in Sri Lanka.
  • Economic ties: India is Sri Lanka’s third largest export destination, after the US and UK. More than 60% of Sri Lanka’s exports enjoy the benefits of the India-Sri Lanka Free Trade Agreement. India is also a major investor in Sri Lanka.
  • Defence: India and Sri Lanka conduct joint Military (Mitra Shakti) and Naval exercises (SLINEX).

Issues:

  • The killing of Fishermen: The killing of Indian fishermen by the Sri Lankan Navy is a lingering issue between these two nations.
  • Influence of China: China’s rapidly growing economic footprint (and political clout as a corollary) in Sri Lanka is straining India-Sri Lanka relations.
    • China is already the largest investor in Sri Lanka, accounting for 23.6% of the total Foreign Direct Investment (FDI) during 2010-2019 as against 10.4% from India.
  • 13th Amendment of the Sri Lankan Constitution: It envisages the devolution of necessary powers to the provincial councils to address the just demand of the Tamil people for equality, justice, peace, and respect within a united Sri Lanka.
    • India supports its implementation but the Sri Lankan government is yet to “fully implement” the 13th Amendment.

About International Monetary Fund (IMF)

  • The IMF was set up along with the World Bank after the Second World War to assist in the reconstruction of war-ravaged countries.
  • The two organizations agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins.
  • The IMF is governed by and accountable to the 190 countries that make up its near-global membership.
    • India joined on 27th December 1945.
  • The IMF's primary purpose is to ensure the stability of the international monetary system — the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
  • The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
  • Reports by IMF:
    • Global Financial Stability Report.
    • World Economic Outlook.
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